Feds’ Shortcut to Closing Wealth Gap Backfired on Minority Homeowners
Mike Thomas, Orlando Sentinel, July 27, 2011
Did you see the devastating numbers about the wealth of minority families?
Their savings have largely been wiped out. White households now have 20 times more wealth than black households and 18 times more wealth than Hispanic households.
It’s as if we got into a time machine and traveled back to the 1960s, wiping out years of government programs designed to close the wealth gap.
There are various reasons. But a big one is this: The federal government turned home ownership into an affirmative-action program, complete with quotas. And a lot of people who had no business buying houses bought them and then lost them.
“As sad as it is to say, this began in the Clinton Administration as a response to the argument that the poor and minorities couldn’t get credit and were being left out of the home-ownership dream,” says James Wright, a sociology professor at University of Central Florida. “They couldn’t meet credit requirements. There was a lot of pressure in progressive circles” to change those requirements.
To further this goal, Fannie Mae agreed to buy high-risk subprime loans in 1999. This meant lenders could sell the loans to unqualified buyers and then dump them on Fannie and the taxpayers.
The Department of Housing and Urban Development set a goal that, by 2001, half the portfolios of Freddie Mac and Fannie Mae should be composed of loans to low-income and moderate-income buyers.
Republicans try to blame Democrats for all this, but President George W. Bush certainly pushed the agenda. The belief was that home ownership was the key to wealth and neighborhood stability.
The feds kept score, comparing white home ownership to minority home ownership, as if this were some kind of competition.
Of course, white buyers signed bad loans and got burned. So did affluent buyers and educated buyers and greedy speculators. The contagion spread to all segments of the market.
But the brunt of this disaster fell on the people who could least afford it, enticed by a government that thought it had come up with a shortcut for closing the wealth gap.
This was social engineering run amok.